Nouriel RoubiniChairman of Roubini Global EconomicsProfessor of Economics at NYU’s Stern School of Business.

Monday December 01, 2014 10:19

NEW YORK – The recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way. The BOJ’s effort to weaken the yen is a beggar-thy-neighbor approach that is inducing policy reactions throughout Asia and around the world.Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies – or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating.All of this will lead to a strengthening of the US dollar, as growth in the United States is picking up and the Federal Reserve has signaled that it will begin raising interest rates next year. But, if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation.The cause of the latest currency turmoil is clear: In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost demand and growth. Fiscal austerity has exacerbated the impact of deleveraging by exerting a direct and indirect drag on growth. Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption.In the eurozone, a sudden stop of capital flows to the periphery and the fiscal restraints imposed, with Germany’s backing, by the European Union, the International Monetary Fund, and the ECB have been a massive impediment to growth. In Japan, an excessively front-loaded consumption-tax increase killed the recovery achieved this year. In the US, a budget sequester and other tax and spending policies led to a sharp fiscal drag in 2012-2014. And in the United Kingdom, self-imposed fiscal consolidation weakened growth until this year.Globally, the asymmetric adjustment of creditor and debtor economies has exacerbated this recessionary and deflationary spiral. Countries that were overspending, under-saving, and running current-account deficits have been forced by markets to spend less and save more. Not surprisingly, their trade deficits have been shrinking. But most countries that were over-saving and under-spending have not saved less and spent more; their current-account surpluses have been growing, aggravating the weakness of global demand and thus undermining growth.As fiscal austerity and asymmetric adjustment have taken their toll on economic performance, monetary policy has borne the burden of supporting faltering growth via weaker currencies and higher net exports. But the resulting currency wars are partly a zero-sum game: If one currency is weaker, another currency must be stronger; and if one country’s trade balance improves, another’s must worsen.Of course, monetary easing is not purely zero-sum. Easing can boost growth by lifting asset prices (equities and housing), reducing private and public borrowing costs, and limiting the risk of a fall in actual and expected inflation. Given fiscal drag and private deleveraging, lack of sufficient monetary easing in recent years would have led to double and triple dip recession (as occurred, for example, in the eurozone).But the overall policy mix has been sub-optimal, with too much front-loaded fiscal consolidation and too much unconventional monetary policy (which has become less effective over time). A better approach in advanced economies would have comprised less fiscal consolidation in the short run and more investment in productive infrastructure, combined with a more credible commitment to medium- and long-term fiscal adjustment – and less aggressive monetary easing.You can lead a horse to liquidity, but you can’t make it drink. In a world where private aggregate demand is weak and unconventional monetary policy eventually becomes like pushing on a string, the case for slower fiscal consolidation and productive public infrastructure spending is compelling.Such spending offers returns that are certainly higher than the low interest rates that most advanced economies face today, and infrastructure needs are massive in both advanced and emerging economies (with the exception of China, which has overinvested in infrastructure). Moreover, public investment works on both the demand and supply sides. It not only boosts aggregate demand directly; it also expands potential output by increasing the stock of productivity-boosting capital.Unfortunately, the political economy of austerity has led to sub-optimal outcomes. In a fiscal crunch, the first spending cuts hit productive public investments, because governments prefer to protect current – and often inefficient – spending on public-sector jobs and transfer payments to the private sector. As a result, the global recovery remains anemic in most advanced economies (with the partial exception of the US and the UK) and now also in the major emerging countries, where growth has slowed sharply in the last two years.The right policies – less fiscal austerity in the short run, more public investment spending, and less reliance on monetary easing – are the opposite of those that have been pursued by the world’s major economies. No wonder global growth keeps on disappointing. In a sense, we are all Japanese now.

It is that season again when commentators review the year’s developments and what they imply for next year. A big surprise is the extent to which record equity prices have diverged from declining commodity prices and unusually low yields on government bonds. This historically unusual divergence can no longer be explained by big macro factors, and the bespoke explanations will be harder to sustain the greater the divergence as we enter 2015.

Had 2014 closed this past weekend, investors in US equity markets would have earned 12 per cent (as measured by the S&P 500). Meanwhile, commodity investors would have lost 9 per cent (as measured by the Thomson Reuters Commodity Index) at a time when the yield on the 30-year US Treasury bond has fallen 100 basis points to 2.89 per cent.

This historically unusual configuration has been particularly stark since the last mini market correction. From mid-October, equities have surged almost 11 per cent while commodities have fallen 7 per cent (amplified by last week’s dramatic plunge in oil prices) and the yield on the 30-year bond is slightly lower. And all this despite three factors.

First, equity rallies that include a series of record highs after an impressive multiyear advance, which has been the case this year, are usually underpinned by robust economic growth. While economic performance has improved in the US – see last week’s revised economic growth rate of 3.9 per cent and the steady decline in the unemployment rate to 5.8 per cent – it remains below what is needed to recapture the foregone potential of recent years. And it is facing increasing headwinds from slowing growth in Europe, Japan and emerging economies, where many US companies sell.

Second, to the extent that improved US economic performance could justify equity valuations, and it is a bit of a stretch, this would conflict with the message coming from bonds and commodities. If anything, the latter points to faltering growth overall.

Third, the other holistic explanation, relying on the influence of experimental central bank measures, is also becoming less powerful.Undoubtedly, unconventional monetary policy became the most important determinant of asset prices following the 2008 global financial crisis, overcoming the influence of fundamentals and altering many historical market correlations in the process. Its repeated success in repressing market volatility and quickly reversing any price hiccup armed investors with the confidence to run well ahead of central banks’ attainment of their policy objectives. The influence of policies on asset prices could become more ambiguous now that central banks are no longer all going in the same direction. The ECB, Bank of Japan and Bank of China are increasing stimulus while the Federal Reserve is heading in the other direction.

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A bespoke approach provides a better explanation of the growing divergence between equity, bond and commodity markets. After all, equity prices receive support from share buybacks and dividend hikes, both enabled by the deployment of the cash held on companies’ balance sheets.

Meanwhile, the hunt for yield forces fixed income investors to double up on their investments in virtually all securities. Commodity prices are also under pressure, most recently due to Opec’s decision not to lower its output ceiling, but also from alternative energy supplies, together with a change in composition of global growth that favours countries with less intensive use of commodities per unit of GDP (eg, an improving US versus a slowing China that recently has played the role of a marginal price setter for several commodities).

Yet even such individualised reasoning will be challenged should the divergences of recent months widen further. At some stage in 2015, market correlations will probably revert to a pattern that is warranted by economic and policy fundamentals. However, what that proves to be is an open question as it depends heavily on what happens to growth and policy effectiveness.Should 2015 fail to involve both a meaningful increase in global growth and more comprehensive policy responses, equity investors will regret not paying greater attention to the messages coming from their counterparts in the bond and commodity markets.Mohamed El-Erian is chief economic adviser to Allianz and author of “When Markets Collide”

Last year was bad. This year is an outright disaster. As we reported earlier using ShopperTrak data, the first two days of the holiday shopping season were already showing a -0.5% decline across bricks-and-mortar stores, following a "cash for clunkers"-like jump in early promotions which pulled demand forward with little follow through in the remaining shopping days. However, not even we predicted the shocker just released from the National Retail Federation, the traditionally cheery industry organization, which just reported absolutely abysmal numbers: sales during the four-day Thanksgiving holiday period crashed by a whopping 11% from $57.4 billion to $50.9 billion, confirming what everyone but the Fed knows by now: the US middle class is being obliterated, and that key driver of 70% of US economic growth is in the worst shape it has been since the Lehman collapse, courtesy of 6 years of Fed's ruinous central planning..Demonstrating the sad state of America's "economic dynamo", shoppers spent an average only $380.95, down 6.4% from $407.02 a year earlier. In fact, as the NRF charts below demonstrate, there was a decline across virtually every tracked spending category (source):

As the WSJ reports, NRF's CEO Matt Shay attributed the drop to a combination of factors, including the fact that retailers moved promotions earlier this year in attempt to get people out sooner and avoid what happened last year when people didn’t finish their shopping because of bad weather. Also did we mention the NRF is perpetually cheery and always desperate to put a metric ton of lipstick on a pig? Well, hold on to your hats folks:

He also attributed the declines to better online offerings and an improving economy where “people don’t feel the same psychological need to rush out and get the great deal that weekend, particularly if they expected to be more deals,” he said.

And of course the sprint vs marathon comparisons, such as this one: "The holiday season and the weekend are a marathon not a sprint,” NRF Chief Executive Officer Matthew Shay said on a conference call. Odd how that metaphor is never used when the (seasonally-adjusted) sprint beats the marathoners. So there you have it: a 11% collapse in retail spending has just been spun as super bullish for the US economy, whereby US consumers aren't spending because the economy is simply too strong, and the only reason they don't spend is because they will spend much more later. Or something. Apparently the plunge in Americans who even care about bargains is also an indication of an economic resurgence:The retail trade group said the number of people who went shopping over the four-day weekend declined by 5.2% to 134 million, from 141 million last year.Finally, what we said earlier about a surge in online sales, well forget it - it was a lie based on the now traditional skewed perspectives from a few self-servcing industry organizations:

Despite many retailers offering the same discounts on the Web as they offered in stores, the Internet didn’t attract more shoppers or more spending than last year. Online sales accounted for 42% of sales racked up over the four-day period, the same percentage as last year, though up from 26% in 2006, the trade group said.

In fact, it was worse: "Shoppers spent an average $159.55 online, down 10.2% from $177.67 last year."But the propaganda piece de resistance is without doubt the following:

“A highly competitive environment, early promotions and the ability to shop 24/7 online all contributed to the shift witnessed this weekend,” Mr. Shay said.

So to summarize: holiday sales plunged, and Americans refused to shop because the economy is "stronger than ever" and because Americans have the option of shopping whenever, which is why they didn't shop in the first place. That, and of course plunging gasoline prices leading to... plunging retail sales, just as all the economists "correctly" predicted.Goebbels approves.

As We Get Older, Friendships, Creativity and Satisfaction With Life Can Flourish

By Anne Tergesen

Nov. 30, 2014 11:27 p.m. ET

Stephen Webster

Everyone knows that as we age, our minds and bodies decline—and life inevitably becomes less satisfying and enjoyable.Everyone knows that cognitive decline is inevitable.Everyone knows that as we get older, we become less productive at work.Everyone, it seems, is wrong.Contrary to the stereotype of later life as a time of loneliness, depression and decline, a growing body of scientific research shows that, in many ways, life gets better as we get older.“The story used to be that satisfaction with life went downhill, but the remarkable thing that researchers are finding is that doesn’t seem to be the case,” says Timothy Salthouse, a professor of psychology at the University of Virginia.

In fact, a growing body of evidence indicates that our moods and overall sense of well-being improve with age. Friendships tend to grow more intimate, too, as older adults prioritize what matters most to them, says Karen Fingerman, a professor of human development and family sciences at the University of Texas at Austin.Other academics have found that knowledge and certain types of intelligence continue to develop in ways that can even offset age-related declines in the brain’s ability to process new information and reason abstractly. Expertise deepens, which can enhance productivity and creativity. Some go so far as to say that wisdom—defined, in part, as the ability to resolve conflicts by seeing problems from multiple perspectives—flourishes.To be sure, growing older has its share of challenges. Some people don’t age as well as others. And especially at advanced ages, chronic conditions including diabetes, hypertension and dementia become increasingly common and can take a toll on mental, as well as physical, health.Still, those who fall into the “stereotype of being depressed, cranky, irritable and obsessed with their alimentary canal” constitute “no more than 10% of the older population,” says Paul Costa, a scientist emeritus at the National Institutes of Health, who for more than three decades directed the personality program of the long-running Baltimore Longitudinal Study of Aging. “The other 90% of the population isn’t like that at all,” Dr. Costa says.Here are six prevalent myths about aging—along with recent research that dispels common misconceptions.

Myth No. 1: Depression Is More Prevalent in Old Age

It’s easy to assume that old age would be a depressing time of life. After all, as health declines and friends and relatives become disabled and die, it can be hard to maintain a positive Outlook.But research indicates that emotional well-being improves until the 70s, when it levels off. Even centenarians “report overall high levels of well-being,” according to a 2014 study by researchers including Laura Carstensen, director of Stanford University’s Center on Longevity, which cites a 2006 study by Christoph Rott, a senior research scientist at Heidelberg University in Germany, among others.

How do researchers measure well-being? From 1993 to 1995, Stanford scientists distributed beepers to 184 adults, ages 18 to 94. For one week, at five randomly selected times each day, the researchers paged participants, who filled out questionnaires asking them to assess—on a scale of one to seven—how much they felt of 19 emotions, including anger, sadness, amusement, boredom and joy. The researchers repeated the same exercise five and 10 years later.Their conclusion: As the participants aged, their moods—measured by the ratio of positive to negative emotions—steadily improved.“Contrary to the popular view that youth is the best time of life, the peak of emotional life may not occur until well into the seventh decade,” Prof. Carstensen says.The study joins others that conclude that older adults focus on positive rather than negative emotions, memories and stimuli. In a 2003 study, for example, Prof. Carstensen found that in contrast to younger adults, older adults presented with an array of happy, sad and angry faces directed their gazes more often toward the happy ones. Why the focus on the positive? As people age, they tend to prioritize emotional meaning and satisfaction, giving them an incentive to see the good more than the bad, Prof. Carstensen says.National data back up the findings. According to the National Institute of Mental Health, 5.5% of adults age 50 and over said they experienced a major depressive episode in 2012. For those 26 to 49, the rate was 7.6%, and for ages 18 to 25 it was 8.9%.While rates of depression in nursing homes tend to be high, Prof. Fingerman says, “In general, when we look at older adults, they tend to be happier, less anxious, less angry and tend to adapt well to their circumstances.”

Myth No. 2: Cognitive Decline Is Inevitable

As we age, our brains undergo structural changes. Certain regions, including the prefrontal cortex, shrink. And the neurons that carry messages become less efficient. As a result, concentration and memory slip and, around age 30, scores on tests of abstract reasoning and novel problem-solving begin to decline.

Like an older computer, an older brain typically takes longer to process and retrieve information from its crowded memory, says Denise Park, a professor of behavioral and brain sciences at the University of Texas at Dallas.But recent discoveries also indicate that—barring dementia—older adults perform better in the real world than they do on cognitive tests. “Typical laboratory tasks may systematically underestimate the true abilities of older adults,” says Lynn Hasher, a professor of psychology at the University of Toronto and a senior scientist at the Rotman Research Institute.To test raw intellectual prowess, scientists design experiments that “minimize the influence of past experience” on performance, says Prof. Salthouse in Virginia. The experiments “tell us what people can do in artificial situations,” he says. But in the real world, “most of what we do is based on the knowledge we have acquired.” Because knowledge and experience increase with age, older adults who are tested in familiar situations show few of the deficits that crop up in laboratory tests, he says.Younger adults may also have advantages in laboratory tests that have nothing to do with their cognitive skills. For example, because professors often recruit students for their experiments, some younger participants may be more comfortable in a lab than older participants, says Prof. Hasher.Older adults who believe negative stereotypes about aging can also unwittingly undermine their own performance on memory tests. In a study published in 2012, scientists at the Yale School of Public Health and the National Institute on Aging reviewed memory tests administered to 395 older participants in the Baltimore Longitudinal Study of Aging, all of whom—at younger ages—had filled out questionnaires assessing their beliefs in negative stereotypes about aging. Over a 38-year period, the decline in memory performance for those ages 60 and over with more negative stereotypes was 30% greater than for those with less negative views, says Becca Levy, an author of the study and an associate professor of psychology at the Yale School of Public Health.The good news: Recent experiments show that certain activities appear to enhance cognitive function and perhaps slow age-related cognitive declines. In two studies published earlier this year, Prof. Park in Dallas tested the memories of 239 adults ages 60 to 90, about one-half of whom spent about 16 hours a week over three months learning new skills, including how to quilt, use an iPad and take digital photographs.Compared with peers who performed word puzzles or engaged in social activities and other tasks that required no new skills, those learning new skills “showed greater improvements in memory, with some also showing improvement in processing speed,” says Prof. Park, who believes that older adults who learn challenging new skills tap more diffuse brain circuits and pathways to compensate for age-related deficits.“Novelty combined with mental challenge is very important,” she says. “Get out of your comfort zone.”Some scientists also believe older adults can make wiser decisions. In a study published in 2010, scientists asked 247 Midwesterners to read stories about conflicts between individuals and social groups and predict the outcomes. After transcribing their responses, the investigators removed participants’ names and ages and asked students who had received training to rate their responses on the basis of “wisdom”—defined, in part, as the ability to see problems from multiple perspectives and show sensitivity to social relationships. The researchers then asked outside experts—including clergy and professional counselors—to rank a subset of the responses according to their own definitions of wisdom, a process that largely confirmed the accuracy of the students’ ratings.The average age of those with scores in the top 20% was 65, versus 46 for the remaining 80%, says Igor Grossmann, an assistant professor of psychology at the University of Waterloo in Ontario.

Myth No. 3: Older Workers Are Less Productive

Workers 55 or older make up 22% of the U.S. labor force, up from 12% in 1992. But thanks in part to stereotypes that portray older workers as less adaptable than their younger colleagues, they are widely assumed to be less productive.In fact, the vast majority of academic studies shows “virtually no relationship between age and job performance,” says Harvey Sterns, director of the Institute for Life-Span Development and Gerontology at the University of Akron.In jobs that require experience, some studies show that older adults have a performance edge. Economists at the Max Planck Institute for Social Law and Social Policy, a nonprofit research organization in Munich, examined the number and severity of errors 3,800 workers made on a Mercedes-Benz assembly line from 2003 to 2006. The economists determined that over that four-year period, the older workers committed slightly fewer severe errors, while the younger workers’ severe error rates edged up.“The older workers seemed to know better how to avoid severe errors,” says Matthias Weiss, the academic coordinator at the institute.

Myth No. 4: Loneliness Is More Likely

As people age, their social circles contract. But that doesn’t mean older adults are lonely.In fact, several academic studies indicate that friendships tend to improve with age.“Older adults typically report better marriages, more supportive friendships, less conflict with children and siblings and closer ties with members of their social networks than younger adults,” says Prof. Fingerman, co-author of a 2004 study that found older adults have “a higher rate of close ties than younger people” and fewer “problematic relationships that cause them distress.”That is also the message of research that Prof. Carstensen published this year. The researchers asked 184 people they have followed for more than a decade to put their friends and relatives into three categories: an inner circle, consisting of people they “feel so close [to] that it would be hard to imagine life without them”; a middle circle they feel a little less close to “but who are still very important”; and an outer circle. The researchers also asked the participants every couple of years to rate—on a scale of one to seven—the intensity of the positive and negative emotions they felt for each.The findings: Until about age 50, most people add to their social networks. After that, they eliminate people they feel less close to and maximize interactions with “close partners who are more emotionally satisfying,” says Prof. Carstensen.Over time, the participants also assigned their networks more positive ratings. “Their loved ones seem to mean more than ever, and that is protective against loneliness,” says Prof. Carstensen. While this doesn’t mean loneliness isn’t a problem for some older people, she adds, research indicates that, on average, older adults are less lonely than young people.

Myth No. 5: Creativity Declines With Age

Creativity has long been seen as the province of the young. (Think: Lennon and McCartney, Jobs and Wozniak.)But academic studies that date as far back as the 19th century pinpoint midlife as the time when artists and scholars are most prolific. Dean Keith Simonton, a professor of psychology at the University of California, Davis, says creativity tends to peak earlier in fields such as pure mathematics and theoretical physics, where breakthroughs typically hinge on problem-solving skills that are sharpest in one’s 20s. In fields that require accumulated knowledge, creative peaks typically occur later. Historians and philosophers, for example, “may reach their peak output when they are in their 60s,” he says.In recent years, an economist has put forth a theory of creative late bloomers. David Galenson, a professor at the University of Chicago, analyzed the ages at which some 300 famous artists, poets and novelists produced their most valuable works. (For the artwork, he used auction prices and the number of times specific works appeared in text books. For literary works, he counted the words devoted to them in scholarly monographs.)His conclusion: Creative genius clusters into two categories: conceptual artists, who tend to do their best work in their 20s and 30s, and experimental artists, who often need a few more decades to reach full potential. Conceptual artists work from imagination, an area where the young have an advantage because they tend to be more open to radical new ideas, Prof. Galenson says. Experimental artists improve with experience. They take years to perfect their style and knowledge of their subjects.People who are creative in older age aren’t anomalies, he says. Mark Twain, Paul Cézanne, Frank Lloyd Wright, Robert Frost and Virginia Woolf are just a few of the artists “who did their greatest work in their 40s, 50s and 60s. These artists rely on wisdom, which increases with age.”

Myth No. 6: More Exercise Is Better

When it comes to improving health and longevity, exercise is key. But a growing number of studies show that more exercise may not always be better.“You get to a point of diminishing returns,” says James O’Keefe, a professor of medicine at the University of Missouri-Kansas City.In a study to be published this month, Dr. O’Keefe and co-authors tracked 1,098 joggers and 3,950 non-joggers from 2001 to 2013; all were part of the Copenhagen City Heart Study, under way since 1976. Overall, the runners in the Copenhagen study lived longer than the non-runners: 6.2 years longer for the men, and 5.6 years longer for the women.But the new study discovered that those who ran more than four hours a week at a fast pace—of 7 miles per hour or more—lost much, if not all, of the longevity benefits.The group that saw the biggest improvements? Those who jogged from one to 2.4 hours weekly at 5 to 7 mph and took at least two days off from vigorous exercise per week.Other studies have come to similar conclusions. In research published this year, scientists at institutions including Iowa State University found that the death rate for runners is 30% to 45% below that for non-runners. But the mortality benefits were similar for all runners, even those who ran five to 10 minutes a day at speeds of 6 mph or less. “Fairly modest doses of running provided benefits as great as…a lot of running,” says Russell Pate, an author of the study and professor at the University of South Carolina.Dr. O’Keefe believes long-term strenuous endurance exercise may cause “overuse injury” to the heart. His recommendation: Stick to a moderate cardiovascular workout of no more than 30 miles a week or 50 to 60 minutes of vigorous exercise a day, and take at least one day off each week. “You don’t need to run a marathon,” he says.Ms. Tergesen is a Wall Street Journal staff reporter in New York. She can be reached at encore@wsj.com.

Saudis risk playing with fire in shale-price showdown as crude crashes

A deep slump in prices might heighten geostrategic turmoil across the Middle East

By Ambrose Evans-Pritchard

4:49PM GMT 30 Nov 2014

As late as last year, Opec was dismissing US shale as a flash in the panPhoto: EPA

Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.

Caliphate leader Abu Bakr al-Baghdadi has already opened a “second front” in North Africa, targeting Algeria and Libya – two states that live off energy exports – as well as Egypt and the Sahel as far as northern Nigeria. “The resilience of US shale may prove greater than the resilience of Opec,” said Alistair Newton, head of political risk at Nomura.

Chris Skrebowski, former editor of Petroleum Review, said the Saudis want to cut the annual growth rate of US shale output from 1m barrels per day (bpd) to 500,000 bpd to bring the market closer to balance. “They want to unnerve the shale oil model and undermine financial confidence, but they won’t stop the growth altogether,” he said.

There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria.

The country had a trade deficit of $354bn in oil and gas as recently as 2011. Citigroup said this will return to balance by 2018, one of the most extraordinary turnarounds in modern economic history. “When it comes to crude and other hydrocarbons, the US is bursting at the seams,” said Edward Morse, Citigroup’s commodities chief. “This situation is unlikely to stop, even if prevailing prices for oil fall significantly. The US should become a net exporter of crude oil and petroleum products combined by 2019, if not 2018.” Opec has misjudged the threat. As late as last year, it was dismissing US shale as a flash in the pan. Abdalla El-Badri, the group’s secretary-general, still insists that half of all US shale output is vulnerable below $85. This is bravado. US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015. Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.” Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup. Mr Morse says the “full cycle” cost for shale production is $70 to $80, but this includes the original land grab and infrastructure. “The remaining capex required to bring on an additional well is far lower, and could be as low as the high-$30s range,” he said. Critics of US shale may have misunderstood its economics. There is a fast decline in output from new wells but this is offset by a “long-tail phase” for a growing number of legacy wells. The Bakken field has already reached 1.1m bpd, and this is expected to double again over the next five years. Other oil projects around the world may be more vulnerable to a price squeeze, including the North Sea, the ultra-deepwater ventures in the Atlantic off Brazil and Angola, Canadian oil sands, or Russia’s contentious plans for the Arctic in the “High North”. But the damage will be gradual. In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup. Opec may not be worried about countries such as Nigeria, but even there a full-blown economic and political crisis could turn the north into a Jihadi stronghold under Boko Haram. The growing Jihadi movements in the Maghreb – combining with events in Syria and Iraq – clearly pose a first-order security threat to the Saudi regime itself. The Libyan city of Derna is already in the hands of the Salafist group Ansar al-Shariah and has pledged allegiance to Islamic State. Terrorist movements in the Egyptian Sinai have also rallied to the black and white flag of IS, prompting Egypt’s leader Abdel al-Sisi to call last week for a “general mobilisation” of all leading Arab and Western powers to defeat the spreading movement. The new worry is Algeria as the Bouteflika regime goes into its final agonies. “They have an entrenched terrorist problem as we saw in the seizure of the Amenas gas refinery last year. These people are aligning themselves with Islamic State as part of the franchise,” said Mr Newton. Algeria exports 1.5m bpd of petroleum products. Its gas exports matter more but the price of liquefied natural gas shipped to Europe is indirectly linked to oil over time. It is an open question what will happen to Algeria, Iraq, and Libya if oil prices hover at half the budget break-even costs for a year or two, given the extreme fragility of the region and political risk of cutting subsidies. The Sunni Salafist tornado sweeping across the Middle East – so strangely like the lightning expansion of Islam in the mid-7th century – is moving to its own inner rhythms. It is not a simple function of economic welfare, let alone oil prices. Yet Saudi Arabia’s ruling dynasty tests fate if it is betting that the Middle East’s fraying political order can withstand a regional economic shock for another two years.

BERKELEY – During the last several decades, income inequality in the United States has increased significantly – and the trend shows no sign of reversing. The last time inequality was as high as it is now was just before the Great Depression. Such a high level of inequality is not only incompatible with widely held norms of social justice and equality of opportunity; it poses a serious threat to America’s economy and democracy.

Underlying the country’s soaring inequality is income stagnation for the majority of Americans. With an expanding share of the gains from economic growth flowing to a tiny fraction of high-income US households, average family income for the bottom 90% has been flat since 1980. According to a recent report by the Council of Economic Advisers, if the share of income going to the bottom 90% was the same in 2013 as it was in 1973, median annual household income (adjusted for family size) would be 18%, or about $9,000, higher than it is now.

The disposable (after tax and transfer) incomes of poor families in the US have trailed those of their counterparts in other developed countries for decades. Now the US middle class is also falling behind.

During the last three decades, middle-income households in most developed countries enjoyed larger increases in disposable income than comparable US households. This year, the US lost the distinction of having the “most affluent” middle class to Canada, with several European countries not far behind.

Once the generous public benefits in education, health care, and retirement are added to estimates of disposable family income in these countries, the relative position of the US middle class slips even further.

The main culprit behind the languishing fortunes of America’s middle class is slow wage growth. After peaking in the early 1970s, real (inflation-adjusted) median earnings of full-time workers aged 25-64 stagnated, partly owing to a slowdown in productivity growth and partly because of a yawning gap between productivity and wage growth.

Since 1980, average real hourly compensation has increased at an annual rate of 1%, or half the rate of productivity growth. Wage gains have also become considerably more unequal, with the biggest increases claimed by the top 10% of earners.

Moreover, technological change and globalization have reduced the share of middle-skill jobs in overall employment, while the share of lower-skill jobs has increased. These trends, along with a falling labor-force participation rate during the last decade, explain the stagnation of middle-class incomes.

For most Americans, wages are the primary source of disposable income, which in turn drives personal consumption spending – by far the largest component of aggregate demand. Over the past several decades, as growth in disposable income slowed, middle- and lower-income households turned to debt to sustain consumption.

The moment of reckoning arrived with the 2007-2008 financial crisis. Since then, aggregate consumption growth has been lackluster, as middle- and lower-income families have been forced to reduce their borrowing and pay down their debt, often through painful defaults on their homes – their primary (and often their only) asset.

As these families have tightened their belts, the pace of consumption spending and economic growth has become more dependent on earners at the top of the income distribution. Since the recession ended in 2009, real consumption spending by the top 5% has increased by 17%, compared to just 1% for the bottom 95%.

The recovery’s pattern has reinforced longer-run trends. In 2012, the top 5% of earners accounted for 38% of personal-consumption expenditure, compared to 27% in 1995. During that period, the consumption share for the bottom 80% of earners dropped from 47% to 39%.

Looking to the future, growing income inequality and stagnant incomes for the majority of Americans mean weaker aggregate demand and slower growth. Even more important, income inequality constrains economic growth on the supply side through its adverse effects on educational opportunity and human-capital development.

Children born into low- and high-income families are born with similar abilities. But they have very different educational opportunities, with children in low-income families less likely to have access to early childhood education, more likely to attend under-resourced schools that deliver inferior K-12 education, and less likely to attend or complete college.

The resulting educational-attainment gap between children born into low and high-income families emerges at an early age and grows over time. By some estimates, the gap today is twice as large as it was two decades ago. So the US is caught in a vicious circle: rising income inequality breeds more inequality in educational opportunity, which generates greater inequality in educational attainment.

That, in turn, translates into a waste of human talent, a less educated workforce, slower economic growth, and even greater income inequality.

Although the economic costs of income inequality are substantial, the political costs may prove to be the most damaging and dangerous. The rich have both the incentives and the ability to promote policies that maintain or enhance their position.

Given the US Supreme Court’s evisceration of campaign-finance restrictions, it has become easier than ever for concentrated economic power to exercise concentrated political power.

Though campaign contributions do not guarantee victory, they give the economic elite greater access to legislators, regulators, and other public officials, enabling them to shape the political debate in favor of their interests.

As a result, the US political system is increasingly dominated by money. This is a clear sign that income inequality in the US has risen to levels that threaten not only the economy’s growth, but also the health of its democracy.

Rioting in one run-down suburb of St Louis shows the enduring rift between blacks and the pólice

Nov 29th 2014 FERGUSON.

“I AM Michael Brown’s uncle,” says a young man. “Will you donate money to my family?” Heturns out to be the younger brother of Lesley McSpadden, mother of the unarmed black teenager fatally sRhot earlier this year by a white police officer. He is standing in a group of people on the edge of West Florissant Road, next to a looted branch of McDonald’s, on the day after the worst riots since the unrest began after Mr Brown’s death in August. Because looting and arson were so bad along this stretch of highway, police had cordoned it off.Asked why he should be given money, the young man says that he is suffering as a member of the Brown clan. He failed to get a job recently at the local casino because a member of staff told him that “white folks wouldn’t come” if they knew he worked there. “And she was black!” he exclaims.A young woman standing nearby, who introduces herself as Kelsey, joins the conversation. The problem, she says, pointing at the scene of destruction from the night before, is that “we don’t belong here”. “We should have never come on those boats from Africa,” she sighs. She recounts how she is frequently stopped when she drives a relative’s car, which, she says, looks like a car only black people drive, with extended wheel arches. Recently she was stopped and asked whether she had any marijuana. She became agitated and said no, of course not. The police officer wrote out three tickets: one for tinted windows that were too dark, one for slowing down too much for a traffic light and one for disrespectful behaviour towards a law officer.For blacks in this dilapidated suburb of St Louis, the killing of Mr Brown was the last straw in a history of mistreatment by the local police. They have long seen policemen, who are almost all white, as an occupying force. Stories abound of how the police in many towns of St Louis County systematically target black people for stops in traffic or on the street, imposing fines they often cannot pay and criminalising them for life. A report by ArchCity Defenders, a non-profit group, found that the municipal court in Ferguson—a city of 21,135 people—issued 32,975 arrest warrants last year, mostly for traffic violations. These fines and fees were the second-biggest source of the city’s $20m income.The long-simmering anger of the black majority (Ferguson is 67% black) erupted again almost immediately after the announcement on the evening of November 24th of a grand jury’s decision that Darren Wilson, the police officer who shot Mr Brown, would not be charged. More than a dozen businesses were set on fire and several others looted. According to the police, at least 150 gunshots were fired and several police cars torched. At times firefighters had to withdraw from battling fires because of the hail of gunfire, stones and other objects.For the next night, November 25th, the governor of Missouri, Jay Nixon, called in more than 2,200 members of the National Guard, the reserve army, to protect homes and businesses. (The night before, around 700 members of the guard had been mainly deployed to protect government buildings and utilities.) Parts of West Florissant Road remained cordoned off. A police car was set on fire, 44 people were arrested and the police fired tear gas and smoke bombs to disperse crowds, but generally the protest was calmer and more controlled than on the previous night. In 170 cities across America, including New York and Los Angeles, people demonstrated largely peacefully to show solidarity with the people of Ferguson, chanting in protest against a law-enforcement system that seems heavily biased against people who are poor and non-white.For Eugene O’Donnell, a former policeman-turned-lecturer at the John Jay College of Criminal Justice, the clumsy way Ferguson’s police handled Mr Brown’s shooting and its aftermath is symptomatic of larger problems of race, class and law enforcement in the country. America’s police officers are often poorly paid and badly trained. In such a gun-infested society many resort to panicky, heavy-handed tactics, often picking on minorities, in their patrols of city streets. “Police departments are frequently not good at their core function,” says Mr O’Donnell. “Ferguson is not an outlier.”Several recent incidents confirm this view. On November 20th a policeman in Brooklyn, New York shot and killed an unarmed black man in the stairwell of a housing project as he was leaving his girlfriend’s apartment. On November 23rd a policeman in Cleveland, Ohio fatally shot a 12-year-old black boy brandishing what turned out to be an air gun. (Police say it bore a close resemblance to a semi-automatic pistol.) Blacks are killed at troubling rates compared with whites. According to ProPublica, a website for investigative journalism, between 2010 and 2012 young black males were 21 times more likely to be fatally shot by police than white men in the same age range.“Communities of colour aren’t just making these problems up,” observed President Barack Obama in a late-night briefing after the announcement of the decision of the jury in Ferguson. The many ills of poor, shrinking and largely black rustbelt cities will take a long time to fix. But more accountable policing is a step that is relatively easy to take. Body-mounted cameras for policemen, which Mr Brown’s parents want to make a requirement in memory of their son, are a good idea. Had Mr Wilson worn such a camera, Americans would know what happened just before he shot Mr Brown. As it is, many people in Ferguson remain unconvinced that he acted lawfully; and so the old wound will continue to fester.

OXFORD – The last few decades of globalization and innovation have resulted in the most rapid progress that the world has ever known. Poverty has been reduced. Life expectancy has increased. Wealth has been created at a scale that our ancestors could not have imagined. But the news is not all good. In fact, the achievements brought about by globalization are now under threat.

The world has simultaneously benefited from globalization and failed to manage the inherent complications resulting from the increased integration of our societies, our economies, and the infrastructure of modern life. As a result, we have become dangerously exposed to systemic risks that transcend borders.

These threats spill across national boundaries and cross the traditional divides between industries and organizations. An integrated financial system propagates economic crises. International air travel spreads pandemics. Interconnected computers provide rich hunting grounds for cybercriminals. Middle Eastern jihadis use the Internet to recruit young Europeans. Living standards rise – and greenhouse-gas emissions follow, accelerating climate change.

As a byproduct of globalization, crises that once burned locally and then quickly flamed out now risk sparking international conflagrations. A pandemic, flood, or cyber attack in the City of London or Wall Street could send the entire world into a financial tailspin.

If the progress that globalization has delivered is to be sustained, countries must accept shared responsibility for managing the risks that it has engendered. National governments – whether powerful, like the United States and China, or weak, like Iraq and Liberia – are unable to address these cascading and complex challenges on their own.

Only a small fraction of the risks arising from globalization require a truly global response. But, by definition, these risks transcend the nation-state; thus, coordinated action is required to address them effectively. The nature of the response needs to be tailored to the threat.

In the case of pandemics, the key is to support countries where outbreaks occur and help those most at risk of infection. Widespread dangers, such as climate change or a new financial crisis, can require the cooperation of dozens of countries and a broad range of institutions. In nearly every case, an international effort is needed.

An important characteristic of the risks of a globalized world is that they often become more serious over time. As a result, the speed at which they are identified, along with the effectiveness of the response, can determine whether an isolated event becomes a global threat. One need only look at the rise of the Islamic State, the outbreak of Ebola, the fight against climate change, or the financial contagion of 2008 to see what happens when a danger remains unidentified for too long or a coordinated response is missing or mismanaged.

And yet, just as the need for robust regional and international institutions is at its greatest, support for them is waning. A growing number of citizens in Europe, North America, and the Middle East blame globalization for unemployment, rising inequality, pandemics, and terrorism. Because of these risks, they regard increased integration, openness, and innovation as more of a threat than an opportunity.

This creates a vicious circle. The concerns of the electorate are reflected in rapidly growing support for political parties that advocate increased protectionism, reductions in immigration, and greater national control over the marketplace. As a result, governments across Europe, North America, Asia, and Oceania are becoming more parochial in their concerns, starving international agencies and regional organizations of the funding, credibility, and leadership capabilities needed to mount a proper response to the challenges of globalization.

In the short term, countries may be able to duck their global responsibilities, but the threat posed by events beyond their borders cannot be kept at bay forever. Unaddressed, the endemic dangers of a globalized world will continue to grow. In confronting dangers such as the Islamic State, Ebola, financial crisis, climate change, or rising inequality, short-term political expediency must be overcome – or the entire world will come to regret it.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.